NYT: Turning Point for Suits Over Chinese Drywall
Oct 14, 2012 -
October 12, 2012
Turning Point for Suits Over Chinese Drywall
Three years ago, Colleen Stephens moved her family from a 5,000-square-foot, newly renovated home overlooking the bay in Virginia Beach into a house half the size and much farther inland.
While she was not thrilled with the move, Ms. Stephens explained, “We would have rather lived in a tent in our backyard than put our kids back in our house.”
The bigger house had been renovated with Chinese-made drywall, and Ms. Stephens contends that it reeked and made her family sick. She filed a lawsuit seeking damages in 2009, but so far, she hasn’t received a cent, in part because of the complexities of suing a manufacturer from China.
But decisions in state and federal courts in recent weeks involving the company, a major Chinese manufacturer of drywall, could signal a turning point for thousands of American homeowners like Ms. Stephens, according to lawyers representing homeowners and homebuilders.
The Chinese manufacturer, Taishan Gypsum, argues that its drywall was not defective and that courts in the United States have no jurisdiction over the company since its drywall was sold in this country by other companies.
But a federal judge in Louisiana ruled last month in a drywall case that Taishan Gypsum was responsible for its drywall sold in Florida, Virginia and Louisiana. The ruling by United States District Court Judge Eldon E. Fallon followed a similar decision on Aug. 31 by a state judge in Florida.
Miami-Dade Circuit Court Judge Joseph P. Farina ruled that the plasterboard company that exported the drywall to Florida was wholly owned and controlled by Taishan Gypsum, and therefore it was subject to the court’s jurisdiction.
The judge also noted that Taishan Gypsum “actively targeted the Florida market by courting Florida companies, mailing drywall samples to Florida, selling large amounts of drywall to Florida-based companies.”
Taishan Gypsum is appealing both rulings, and the company’s lawyer, Joe Cyr of Hogan Lovells, said he was confident his client would prevail. Mr. Cyr said American distributors came to China looking for drywall in 2005 and 2006.
“Taishan Gypsum did not ship any drywall to the U.S.,” he said, adding that Taishan “strongly disputes any claim that the drywall is defective.”
But lawyers representing homeowners and homebuilders suing over the suspect drywall suggested the rulings could have broad implications. In all, the lawyers said, about 7,000 to 10,000 homes suffered damage because of defective Chinese drywall installed in the aftermath of Hurricanes Rita and Katrina and during a building boom in the South.
“This opens the door for courts to look to Chinese manufacturers to stand behind their products,” said Hilarie Bass, a lawyer with Greenberg Traurig in Miami who represents several builders, including Lennar Homes, which she says spent more than $40 million replacing defective drywall and is now trying to recover money from Taishan Gypsum.
The drywall dispute underscores the complexities of sorting out legal claims in an increasingly interconnected world. As Jacques deLisle, a law professor at the University of Pennsylvania put it, “Products move very easily across borders. Legal judgments, not so much.”
With the exception of the members of the European Union, countries rarely recognize court judgments from other nations. But often the problems are resolved in other ways. For instance, businesses from different countries include binding arbitration agreements in their contracts, said Stephen C. Yeazell, a law professor at the University of California, Los Angeles.
Or, instead of pursuing a foreign-based company, plaintiffs often sue the American subsidiary of a foreign manufacturer or a major distributor. In the case of the defective drywall, lawsuits were filed against the entire supply chain — builders, installers, distributors — but none had enough money to pay the claims, said Arnold Levin, a Philadelphia lawyer representing homeowners in the case before Judge Fallon in Louisiana.
“Only the manufacturer can make this right,” he said.
Some members of Congress have taken up the issue, introducing the Contaminated Drywall Safety Act that, among other things, says the secretary of state should insist that the government of China force manufacturers to submit to the jurisdiction of American courts. The bill passed the House last month and hasn’t yet been taken up by the Senate.
In the years before the economic crisis, hundreds of millions of square feet of Chinese drywall was exported to the United States. But soon after the drywall was installed homeowners noticed a sulfurous smell. In addition, appliances like televisions and microwaves inexplicably failed, and silver and copper items were covered with black soot.
Many homeowners also complained of health problems, including headaches, respiratory ailments and skin and eye irritation. Hundreds of lawsuits were filed in state and federal courts against builders, installers, suppliers, importers and manufacturers.
The Chinese drywall was primarily manufactured by two companies, Taishan Gypsum and Knauf Plasterboard Tianjin, a Chinese affiliate of a German company. Last December, Knauf entered into an agreement to resolve the claims against it, contingent on Judge Fallon’s approval next month.
Steven Glickstein, a lawyer at Kaye Scholer who represents Knauf, said the cost of the settlement depended on how many homeowners are determined to have had installed Knauf drywall. The lawsuits against Taishan Gypsum, meanwhile, are delayed until the courts consider the company’s appeals of the recent rulings. Even if the homeowners and builders eventually win their cases against Taishan Gypsum, they face an even bigger challenge of collecting from the Chinese company.
Ms. Stephens, who is 44, is not getting her hopes up. “There’s no way to hold a foreign manufacturer accountable in the U.S. court system,” she said. “All they have decided so far is that we have jurisdiction.”
Michelle Germano, who is also suing Taishan Gypsum, moved out of her condominium in Norfolk, Va., four years ago because it was like a “gas chamber.”
“I’m going to stay positive that something good is going to come out of this,” she said.